Paper 8 Cost Accounting Page 1 Page 1
Paper8: Cost Accounting Full Marks: 100 Time allowed: 3 hours Section A Answer the following questions: 1. Choose the correct answer from the given four alternatives: [10 1 = 10] (i) Cost Unit of Hospital Industry is (a) Tonne (b) Student per year (c) Kilowatt Hour (d) Patient Day (ii) Which of the following is considered as normal loss of material? (a) Pilferage (b) Loss due to accident (c) Loss due to careless handling of material (d) None of these (iii) Idle time is (a) Time spent by workers in factory (b) Time spent by workers in office (c) Time spent by workers off their work (d) Time spent by workers on their job (iv) Warehouse expense is an example of (a) Production overhead (b) Selling overhead (c) Distribution overhead (d) None of above (v) Which of the following items is not included in preparation of cost sheet? (a) Carriage inward (b) Purchase returns (c) Sales Commission (d) Interest paid (vi) Operating costing is applicable to: (a) Hospitals (b) Cinemas (c) Transport undertaking (d) All of the above (vii)if sales are `90,000 and variable cost to sales is 75%. Contribution is (a) `21,500 (b) `22,500 (c) `23,500 (d) `67,500 Page 2 Page 2
(viii) P/V Ratio will increase if the (a) There is a decrease in fixed cost (b) There is an increase in fixed cost (c) There is a decrease in selling price per unit (d) There is a decrease in variable cost per unit. (ix) Difference between standard cost and actual cost is called as (a) Wastage (b) Loss (c) Variance (d) Profit (x) Sales Budget is a (a) Expenditure budget (b) Functional budget (c) Master budget (d) None (b) Match the statement in Column I with the most appropriate statement in Column II: [1 5 =5] Column I Column II (i) (ii) (iii) (iv) (v) Job Ticket Escalation Clause VED Analysis Angle of Incidence Conversion Cost (A) (B) (C) (D) (E) A Technique of Inventory Control BEP Chart Contract Costing Labour Cost Plus Factory Overhead A Method of Time Booking (c) State whether the following statements are True' or 'False': [1x5=5] (i) A flexible budget is one, which changes from year to year (ii) Variances are calculated for both material and labour. (iii) Multiple Costing is suitable for the banking Industry. (iv) Contact costing is variant of job costing (v) Closing stock of finished goods should be valued on the basis of cost of sales. (d) Fill in the blanks suitably: [1x5=5] (i) Administration overheads are usually absorbed as a percentage of (ii) Variable cost per unit is (iii) Bin card shows details of materials. (iv) Sum of material price variance and material usage variance is equal to variance. (v) Contribution earned on Breakeven sales equals to of the firm. 1. (a) Multiple Choice Page 3 Page 3
(i) (d) Patient Day (ii) (d) None of these (iii) (c) Time spent by workers off their work (iv) (c) Distribution overhead (v) (d) Interest paid (vi) (d) All of the above (vii)(b)`22,500 (viii) (d) There is a decrease in variable cost per unit. (ix) (c) Variance (x) (b) Functional budget (b) Matching: (i) Column I Job Ticket (E) Column II A method of Time Booking (ii) Escalation Clause (C) Contract Costing (iii) VED Analysis (A) A Technique of Inventory Control (iv) Angle of Incidence (B) BEP Chart (v) Conversion Cost (D) Labour cost plus Factory overhead (c) True & False (i) False (ii) True (iii) False (iv) True (v) False (d) Fill in the blanks (i) Work Cost (ii) Fixed (iii) Quantitative (iv) Material Cost (v) Fixed Cost Section B Answers any five Questions, working notes should form part of the answer. 2. (a) AJC From the following particulars furnished by H/N Bright & Co. Ltd prepares a statement indicating the pricing of issues on the basis of Simple Average Method. 2017, April March 1 Purchased 200 units @ `20 each. March 2 Purchased 100 units @ `18 each. March 5 Issued 250 units to job P vide M/R No. 10 Page 4 Page 4
March 7 March 10 Purchased 200 units @ ` 16 each Purchased 300 units @ ` 14 each. March 13 Issued 200 units to job Q vide M/R No. 16 March 18 Issued 200 units to job R vide M/R No. 18 March 20 Purchased 100 units @ ` 13 each March 24 Issued 150 units to job X vide M/R No. 20. 2017 March 1 March 2 March 5 March 7 March10 March13 March18 March 20 March 24 Date Qty. Price STORES LEDGER ACCOUNT Receipts Issue Balance Value Qty. Price Value Qty. 200 100 200 300 100 20 18 16 14 13 4,000 1,800 3,200 4,200 1,300 Value Page 5 Page 5 250 200 200 150 Working Notes: 1. Calculation of price for issue on 5 th March, 2017 = 20 + 18/2 = 19 2. Price for issue on 13 th March 18 + 16 + 14/3 = 16 3. Price for issue on 18 th March 16 + 14/2 = 15 4. Price for issue on 24 th March 14 + 13/2 = 13.5 19 16 15 13.5 4,750 3,200 3,000 2025 200 300 50 250 550 350 150 250 100 [9] 4,000 5,800 1,050 4,250 8,450 5,250 2,250 3,550 1,525 (b) A factory has three production departments A, B and C and also two service departments X and Y. The primary distribution of the estimated overheads in the factory has just been completed. These details and the quantum of service rendered by the service departments, to the other departments are given below: A B C X Y Primary distribution 2,40,000 2,10,000 2,50,000 1,40,000 96,000 Service rendered by Dept X 30% 20% 35% 15% Dept Y 25% 40% 25% 10% Prepare a statement showing the distribution of service dept. overheads to the production departments, by the simultaneous equation method. [6] Let, P and N be the total overheads of the service departments X and Y respectively. Then, P=1,40,000+0.10N i.e., 10PN =14,00,000 N=96,000+0.15P and 0.15P+N =96,000 (By adding) 9.85P 14,96,000
By substitution, P=14,96,000/9.85 =`1,51,878 N=96,000+0.15X1,51,875 =96,000+22,782 =`1,18,782 Statement showing the distribution of service dept. overheads to the production departments (Production Depts.) Distribution of A B C Total overheads of 1,40,000 Deptt X(85% 45,563 30,376 53,157 1,29,096 of `1,51,878) 96,000 Deptt Y(90% of 29,696 47,513 29,695 1,06,904 ` 1,18,782) 2,36,000 Total 75,259 77,889 82,852 2,36,000 3. (a) How do you treat the Idle Time as per CAS7?. [6] Treatment of Idle Time As per CAS7, Idle Time Cost shall be assigned direct to the cost object or treated as overheads depending on the economic feasibility and specific circumstances causing such idle time. Treatment of different categories of Idle Time is as below: (i) Unavoidable idle time above would be for insignificant periods. In Cost Accounts, this is allowed to remain merged in the Production Order or Standing Order Number on which the worker was otherwise employed. (ii) Normal Idle Time is booked to factory or works overhead. For the purpose of effective control, each type of idle time, i.e., idle time classified according to the causes is allocated to a separate Standing Order Number. (iii) Abnormal Idle Time would usually be heavy in amount involves longer periods and would mostly be beyond the control of the management. Payment for such idle time is not included in cost and is adjusted through the Costing Profit and Loss Account or included in Profit and Loss Account, when the accounts are integrated. (iv) Tendency to conceal Idle Time should be discouraged. It is a noneffective time and the resultant loss of profit due to reduced production activity but also increases the cost per unit of production as the fixed costs continue to be incurred, irrespective of the reduced quantum of production due to loss of labour time. Idle Time should, therefore, be highlighted prominently so that action can be taken to remove the causes thereof. Although for obvious reasons, it is not possible to record minor details, vigilance is necessary for finding out longterm idleness among the workers. (b) The financial records of Modern Manufacture Ltd. reveal the following for the year ended 31122016: ` in 000 ` Sales (20,000 units) 4,000 Materials 1,600 Wages 800 Factory Overheads 720 Office and Administrative Overheads 416 Selling and Distribution Overheads 288 Page 6 Page 6
Finished Goods (1,230 units) 240 Workinprogress 48 Labour 32 Overheads (Factory) 32 112 Goodwill written off 320 Interest on Capital 32 In the Costing records, factory overhead is charged at 100% wages, administration overhead 10% of factory cost and selling and distribution overhead at the rate of ` 16 per unit sold. Prepare a statement reconciling the profit as per cost records with the profit as per financial records of the company. [9] Profit & Loss Account of Modern Manufacturers for the year ended 31122016 (` in 000) To Materials 1,600 By Sales 4,000 (20,000 units) To Wages 800 To Factory Overheads 720 By Finished Goods 240 To Office and Admn. 416 1230 units Overheads To Selling & Distribution 288 WorkinProgress 112 Overheads To Goodwill written off 320 To Interest on Capital 32 To Net Profit 176 4,325 4,352 Profit as per Cost Record ` In 000) Materials 1,600 Wages 800 Prime Cost 2,400 Factory Overhead 800 (100% of wages) Gross Factory Cost 3,200 Less: Closing WIP 112 Factory Cost 3,088 (21,230 units) Add: Office & Administrative Overhead 308.80 (10% of Factory Cost) Total Cost of output 3,396.80 Less: Closing stock (1,230 units) of Finished Goods 196.80 (See Working Note 1) Cost of Production of 20,000 units 3,200.00 Selling and Distribution overhead 320.00 (@ ` 16 p u.) Cost of sales 3,520.00 (20,000 units) Sales Revenue 4,000.00 (20,000 units) Profit 480.00 Page 7 Page 7
Reconciliation Statement `( 000) ` ( 000) Profit as per Cost Accounts 480 Add: Factory overhead Overabsorbed 80 (800720) Selling and Distribution Overhead 32 Overabsorbed (320288) Closing stock overvalued in Financial 43.20 155.2 Accounts (240196.8) 635.20 Less: Office & Administrative Overhead 107.20 underabsorbed (416308.80) Goodwill written off 320.00 Interest on Capital 32.00 459.20 Profit as per Financial Accounts 176.00 Working Note: 1. Cost per unit of finished goods=total cost of output/total number of units produced =` 3396.80 Thousand/ 21,230 units = ` 160 Cost of 1230 units=`160 x 1,230 = ` 1,96,800 4. (a) In a factory following the Job Costing Method, an abstract from the work in process as at 30 th September, was prepared as under. [8] Job No. Materials Direct Labour Factory Overheads Applied 115 1,325 400 Hrs 800 640 118 810 250 hrs 500 400 120 765 300 hrs 475 380 2,900 1,775 1,420 Materials used in October were as follows: Material requisitions No. Job No. Cost 54 118 300 55 118 425 56 118 515 57 120 665 58 121 910 59 124 720 3,535 A summary at Labour Hours deployed during October is as under: Job No. No. of hours Shop A Shop B 115 25 25 118 90 30 120 75 10 121 65 124 20 10 275 75 Indirect Labour: Waiting for material 20 10 Machine 10 5 Page 8 Page 8
breakdown Idle time 5 6 Overtime premium 6 5 316 101 A shop credit slip was issued in October, which material issued under requisition No. 54 was returned back to stores as being not suitable. A material transfer note issued in October indicated that material issued under requisition No. 55 for Job 118 was directed to Job 124. The hourly rate in shop A per labour hour is `3 while at shop B it is `2 per hour. The factory overhead is applied at the same rate as in September: Jobs 115, 118 and 120 were completed in October. You are asked to compute the factory cost of the completed jobs. It is practice of the management to put a 10% on the factory cost to cover administration and selling overheads and invoice the job to the customer on a total cost plus 20% basis what would be the invoice price of these three jobs? Calculation of selling price of the Job Job No. 115 118 120 Costs in September: ` ` ` Material 1,325 810 765 Labour 800 500 475 Overheads 640 400 380 Total (A) 2,765 1,710 1,620 Costs in October: Material 515 665 Labour (25 x 3)+(25 x 2) 125 (90 x 3)+(30 x 2) 330 (75 x 3)+(10 x 2) 245 Overheads (80%) 100 264 196 Total (B) 225 1,109 1,106 Total Factory Cost (A+B) 2,990 2,819 2,726 Add: Admn. Overheads 10% 299.0 281.9 272.6 3,289.0 3,100.9 2,998.6 Profit 20% 651.80 620.18 599.72 Selling Price 3,946.80 3,721.08 3,598.32 (b) A product passes through three processes A, B and C. 10,000 units at a cost of `1.10 were issued to Process A. The other direct expenses were as follows: [7] Page 9 Page 9
PROCESSA PROCESSB PROCESSC Sundry materials 1,500 1,500 1,500 Direct labour 4,500 8,000 6,500 Direct expenses 1,000 1,000 1,503 The wastage of process: A was 5% and in process B 4% The wastage of process A was sold at `0.25 per unit and that of B at `0.50 per unit and that of C at ` 1.00. The overhead charges were 160% of direct labour. The final product was sold at `10 per unit fetching a profit of 20% on sales. Find out the percentage of wastage in Process C Dr. PROCESSA Account Cr. Particulars Units ` Particulars Units ` To, Material introduced A/c 10000 11,000 By Normal Loss A/c (10000 x 5%) x 0.25 To, Additional Material A/c To, Direct Labour A/c 4,500 To, Direct Expenses A/c 1,000 To, Overheads A/c 7,200 1,500 By Transfer to ProcessB A/c @ `2.64 per unit 500 125 9500 25075 10000 25,200 10000 25,200 Dr. PROCESSB Account Cr. Particulars Units ` Particulars Units ` To, Transfer from Process A A/c 9500 25,075 By, Normal Loss A/c (9,500 x 4%) x 0.5 To, Direct Material A/c 1,500 By, Transfer to ProcessC To, Direct Labour A/c A/c 8,000 @ ` 5.283 To, Direct Expenses A/c 1,000 To, Overheads A/c 12,800 380 190 9120 48,185 9,500 48,375 9,500 48,375 Dr. PROCESSC Account Cr. Particulars Units ` Particulars Units ` To, Transfer from Process B A/c 9120 48,185 By, Normal Loss A/c 696 696 To, Direct Material A/c 1,500 By, Transfer to Finished Stock A/c @ `8/ per unit 8424 67,392 To, Direct Labour A/c 6,500 To, Direct Expenses A/c 1,503 To, Overheads A/c 10,400 9120 68,088 9120 68,088 Page 10 Page 10
Working Notes: Sale Price per unit 10 ( ) Profit @ 20% 2 Cost per unit 8 Let the No. of units of loss in Process C be x Scrap value = X 1 = ` X 68,088 x = 8(9,120x) units 68,088 = 72,960 7x 7x = 4,872 X= 696 units Percentage of Normal wastage = 696 100 = 7.63% 9120 5. (a) Hera Transport Service Company is running four (4) buses between two cities, which are 40 kilometers apart. Seating capacity of each bus is 40 passengers. The following particulars are furnished by the company for March 2017: Particulars Amount Salaries of Office Staff 1,50,000 Wages of drivers, conductors and cleaners 3,60,000 Diesel oil & other Lubricants 3,50,000 Repairs & Maintenance 1,00,000 Insurance, Taxation etc. 2,60,000 Depreciation 2,50,000 Interest & Other Expenses 2,00,000 Total 16,70,000 Passengers carried were 80% of seating capacity. All buses run on all days of the month. Each bus made one round trip per day. Find out the cost per passenger Kilometer. [8] (A) (B) (C) Operating & Running Cost: Operating Cost Statement March 2017 Particulars Amount Amount Wages of Drivers, Conductors, and Cleaner 3,60,000 Diesel Oil & Other Lubricants 3,50,000 7,10,000 Maintenance Charges: Repair & Maintenance 1,00,000 1,00,000 Fixed Charges: Insurance & Taxation etc. 2,60,000 Depreciation 2,50,000 Interest & Other exp. 2,00,000 Salaries & Office Staff 1,50,000 8,60,000 Total (A+B+C) 16,70,000 *Cost per passenger kilometer: = ` 16,70,000 3,07,200 = ` 5.44 Page 11 Page 11
* Passengers kilometers are computed as below: Number of buses x distance in one round trip x seating capacity available x percentage of seating capacity actually used x number of days in a month. 4 x 40 x 2 x 40 x 80% x 30 days = 3,07,200 (b) New Construction Ltd. is engaged in a contract during the year. Following information is available at the year end. Particulars Amount Contract Contract price 6,00,000 Material delivered direct to site 1,20,000 Materials issued from stores 40,000 Materials returned to stores 4,000 Materials at site at the end of year 22,000 Direct labour payments 1,40,000 Direct expenses 60,000 Architect's fees 2,500 Establishment charges 24,500 Plant installed at cost 80,000 Value of plant at the end of year 65,000 Accrued wages at the end of year 10,000 Accrued expenses at the end of year 6,000 Cost of contract not certified by architect 23,000 Value of contract certified by architect 4,20,000 Cash received from contractor 3,78,000 During the period, materials amounting to `9,000 have been transferred to another contract to another place. You are required to show the Contract A/c. [7] In the Book of new Construction ltd. Dr. Contract Account for the year ended... Cr. Particular Amount Particular Amount To Material delivered to Site 1,20,000 By Materials returned to Store 4,000 To Material from Store 40,000 By Material c/d 22,000 To Labour 1,40,000 By Material Transferred 9,000 Add. Accrued 10,000 1,50,000 By Cost of Contract c/d 3,83,000 (Balancing figure) To Direct Expenses 60,000 Add. Accrued 6,000 66,000 To Depreciation on Plant 15,000 (80,000 65,000) To Architect's Fees To Establishment Charges To Cost of Contract b/d To Notional Profit c/d (Balancing Figure) 2,500 24,500 4,18,000 4,18,000 3,83,000 By WorkinProgress A/C Work Certified 4,20,000 Work Uncertified 23,000 60,000 4,43,000 4,43,000 Page 12 Page 12
To Costing Profit & loss A/c (Working Note) To WorkinProgress A/c (Balancing figure) 36,000 By Notional profit b/d 60,000 24,000 60,000 60,000 Working Note: 2 Cash received Profit Transferred = Notional Profit 3 Work Certified = 2 3,78,000 60,000 3 4,20,000 = 36,000 6. (a) The sales turnover and profit during two periods were as follows: [5] Period Sales Profit 1 2 2,00,000 3,00,000 20,000 40,000 What would be probable trading results with sales of `1,80,000? What amount of sales will yield a profit of ` 50,000? P/V ratio = (Change in profit / Change in sales) x 100 = (20,000 / 1,00,000) x 100 = 20% Fixed cost = (Sales x P/V ratio) Profit = (2,00,000 x 0.2) 20,000 = ` 20,000 Sales required to earn desired profit = Fixed Cost Desired Profit P/ V Ratio = (20,000 + 50,000) / 20% = ` 3,50,000 (b) Mr. Young has `1,50,000 investment in a business. He wants a 15% profit on his money. From an analysis of recent cost figures he finds that his variable cost of operating is 60% of sales; his fixed costs are `75,000 per year. Show supporting computations for each answer. (i) What sales volume must be obtained to breakeven? [10] (ii) What sales volume must be obtained to his 15% return on investment? (iii) Mr. Young estimates that even if he closed the doors of his business he would incur `25,000 expenses per year. At what sales would be better off by locking his sales up? P/V ratio (V. cost ratio 60%) = 40% (i) Break even sales = 75,000 / 40% = ` 1,87,500 (ii) Required sales to get desired income = (75,000 + 22,500) / 40% = ` 2,43,750 (iii) Shut down sales = ` 2,43,750 = Fixed Cost Shut Down Cost P/ V Ratio = (75,000 25,000) / 40% Page 13 Page 13
= ` 1,25,000 7. (a) A manufacturing concern which has adopted standard costing furnishes the following information. Standard Material for 70 Kg of finished product of 100 Kg Price of materials Re.1 per kg Actual Output 2,10,000 kg. Material used 2,80,000 kg. Cost of materials ` 2,52,000 Calculate: (i) Material Usage Variance (ii) Material Price Variance (iii) Material cost Variance [6] Computation of Required Values (1) SQSP (2) AQSP (3) AQAP [2,10,000 x 100/70] x 1 2,80,000 x 1 3,00,000 2,80,000 0 2,52,000 Computation of Required Variances: (i) Material Usage Variance = (1) (2) = ` 20,000 (F) (ii) Material Price Variance = (2) (3) = ` 28,000(F) (iii) Material Cost Variance = (1) (3) = ` 48,000(F) (b) Prepare a Cash Budget for the three months ending 30th June, 2016 from the information given below: (a) MONTH SALES MATERIALS WAGES OVERHEADS February 14,000 9,600 3,000 1,700 March 15,000 9,000 3,000 1,900 April 16,000 9,200 3,200 2,000 May 17,000 10,000 3,600 2,200 June 18,000 10,400 4,000 2,300 (b) Credit terms are: Sales / Debtors: 10% sales are on cash, 50% of the credit sales are collected next month and the balance in the following month. Creditors: Materials 2 months Wages 1/4 month Overheads1/2 month. (c) Cash and bank balance on 1st April, 2016 is expected to be ` 6,000. (d) Other relevant information are: (i) Plant and machinery will be installed in February 2016 at a cost of ` 96,000. The monthly installment of `2,000 is payable from April onwards. Page 14 Page 14
(ii) Dividend @ 5% on preference share capital of ` 2,00,000 will be paid on 1st June. (iii) Advance to be received for sale of vehicles ` 9,000 in June. (iv) Dividends from investments amounting to ` 1,000 are expected to be received in June. [9] Cash Budget for the 3 Months Ending 30th June 2016 (Amount in `) Particulars April May June Opening Balance 6,000 3,950 3,000 Add: Receipts: Cash Sales 1,600 1,700 1,800 Collection from debtors [see note (1)] 13,050 13,950 14,850 Advance for sale of vehicles 9,000 Dividends from Investments 1,000 Total (A + B) 20,650 19,600 29,650 Less: Payments Materials Wages (see note 2) Overheads Installment of Plant & machinery Preference Dividend 9,600 3,150 1,950 2,000 9,000 3,500 2,100 2,000 9,200 3,900 2,250 2,000 10,000 Total (C) 16,700 16,600 27,350 Closing Balance (A+ B C) 3,950 3,000 2,300 Working Notes: (i) Computation of collection from Debtors Month Total Sales Credit Sales Feb. Mar. Apr. May June Feb. 14,000 12,600 6,300 6,300 March 15,000 13,500 6,750 6,750 Apr. 16,000 14,400 7,200 7,200 May 17,000 15,300 7,650 13,050 13,950 14,850 (ii) Wages payment in each month is to be taken as three fourths of the current month plus one fourth of the previous month. 8. Write short notes on any three of the following: [5x3=15] (a) Cost Centre (b) Limitations of cost accounting System (c) Cost Accounting Standard on Packing Material Cost (d) Standard costing Vs Budgetary Control (a) Cost Centre CIMA defines a cost centre as a location, a person, or an item of equipment (or a group of them) in or connected with an undertaking, in relation to which costs ascertained and used for the purpose of cost control. The determination of suitable cost centres as well as analysis of cost under cost centres is very helpful for periodical comparison and control of cost. In order to obtain the cost of product or service, expenses should be suitably Page 15 Page 15
segregated to cost centre. The manager of a cost centre is held responsible for control of cost of his cost centre. The selection of suitable cost centres or cost units for which costs are to be ascertained in an undertaking depends upon a number of factors such as organization of a factory, condition of incidence of cost, availability of information, requirements of costing and management policy regarding selecting a method from various choices. Cost centre may be production cost centres operating cost centres or process cost centres depending upon the situation and classification. Cost centres are of two typespersonal and Impersonal Cost Centre. A personal cost centre consists of person or group of persons. An impersonal cost centre consists of a location or item of equipment or group of equipments. (b) Limitations of cost accounting System Like any other system of accounting, Cost Accountancy is not an exact science but an art which has developed through theories and accounting practices based on reasoning and commonsense. Many of the theories cannot be proved nor can they be disproved. They grownup in course of time to become conventions and accepted principles of Cost Accounting. These principles are by no means static, they are changing from day to day and what is correct today may not hold true in the circumstances tomorrow Large number of Conventions, Estimates and Flexible factors: No cost can be said to be exact as they incorporate a large number of conventions, estimations and flexible factors such as : Classification of costs into its elements. Materials issue pricing based on average or standard costs. Apportionment of overhead expenses and their allocation to cost units/centres. Arbitrary allocation of joint costs. Division of overheads into fixed and variable. Cost Accounting lacks the uniform procedures and formats in preparing the cost information of a product/ service. Keeping in view this limitation, all Cost Accounting results can be taken as mere estimates. (c) CAS9: Cost Accounting Standard on Packing Material Cost: This standard deals with the principles and methods of determining the Packing Material Cost. This standard deals with the principles and methods of classification, measurement and assignment of Packing Material Cost, for determination of the cost of product, and the presentation and disclosure in Cost Statements. Packing Materials for the purpose of this standard are classified into primary and secondary packing materials. Objective The objective of this standard is to bring uniformity and consistency in the principles and methods of determining the packing material cost with reasonable accuracy. Scope This standard should be applied to cost statements, which require classification, measurement, assignment, presentation and disclosure of Packing Material Cost including those requiring attestation. Page 16 Page 16
(d) Standard costing Vs Budgetary Control The difference may be summarized as follows: A system of Budgetary Control may be operated even if no Standard Costing system is in use in the concern. While standard is a unit concept, budget is a total concept. Budgets are the ceilings or limits of expenses above which the actual expenditure should not normally rise; if it does, the planned profits will be reduced. Standards are minimum targets to be attained by actual performance at specified efficiency. Budgets are complete in as much as they are framed for all the activities and functions of a concern such as production, purchase, selling and distribution, research and development, capital utilisation, etc. Standard Costing relates mainly to the function of production and the related manufacturing costs. A more searching analysis of the variances from standards is necessary than in the case of variations from the budget. Budgets are indices, adherence to which keeps a business out of difficulties. Standards are pointers to further possible improvements Page 17 Page 17